Impact of peer comparisons and firm heterogeneity on nonpoint source water pollution: An experimental study

Shang Wu, Leah H. Palm-Forster and Kent Messer ()

Resource and Energy Economics, 2021, vol. 63, issue C

Abstract: Greg Poe was a pioneer in using experimental economics to test theories and potential policies for controlling ambient pollution. His foundational work showed that, in some settings, policies could induce groups to reduce their nonpoint source (NPS) pollution to socially-efficient levels. Poe’s earlier studies assumed firms were homogeneous, which laid the groundwork for subsequent research to investigate the effect of firm heterogeneity on policy outcomes. We build on the research foundation laid by Poe and his colleagues by using an economic experiment to test the effects of four types of firm heterogeneity and three social norm information treatments on the performance of an ambient tax/subsidy policy. Our experimental results show that heterogeneity reduces the effectiveness of the ambient tax/subsidy policy, but that information nudges can improve outcomes even when there is considerable heterogeneity in the policy environment. Participants were also better able to find and retain their dominant strategies when they were provided with information about similar firms, suggesting that individually-targeted information is more effective than information about aggregate group-level decisions.

Keywords: Ambient-based policy; Heterogeneous agents; Information nudges; Laboratory experiment; Nonpoint source pollution (search for similar items in EconPapers)
JEL-codes: C9 Q52 Q53 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:63:y:2021:i:c:s092876551830318x

DOI: 10.1016/j.reseneeco.2019.101142

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